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No Alteration on Cheques rule by RBI not applicable on all Cheques

THE Reserve Bank of India has clarified that its directive to banks, asking them not to honour cheques with alterations, will be applicable only for cheques cleared under the image-based cheque truncation system (CTS).At present, the cheque truncation project is being run only in the Delhi area with Chennai expected to move onstream soon.

The clarification paves the way for bank branches in metros like Mumbai where CTS is still not operational to accept corrected cheques. RBI's directive had created a flurry in trade circles and even among utilities that have been turning away cheques with any form of correction or alteration even if the changes were validated by the cheque drawer's signature.

In a notification given below, RBI has clarified that its directive on prohibiting alterations/ corrections on cheques ``will be applicable only for cheques cleared under the image based Cheque Truncation System (CTS).

RBI has also clarified that this directive is not applicable to cheques cleared under other clearing arrangements such as MICR clearing,non-MICR clearing, over-the-counter collection (for cash payment), or even for direct collection of cheques outside the Clearing House arrangement.

Cheque Truncation is a system of cheque clearing and settlement between banks based on electronic data/images or both without physical exchange of instrument. Here the cheque is scanned and electronically presented for settlement with the clearing house.

Currently, most of the clearing is done on the MICR system and banks often entertained cheques with alterations, be it the name of the party to whom the cheque is issued, or the date or the amount, provided the issuer of the cheques does is signature besides the correction.

Full Notification given below

Standardisation and Enhancement of Security Features in Cheque Forms

RBI/2009-10/503DPSS. CO. CHD. No. 2806/04.07.05/2009-10

June 22, 2010

The Chairman and Managing Director / Chief Executive Officer
All Scheduled Commercial Banks including RRBs /
Urban Co-operative Banks / State Co-operative Banks /
District Central Co-operative Banks
Madam / Dear Sir,Standardisation and Enhancement of Security Features in Cheque Forms
We invite your attention to our circular DPSS.CO.CHD.No. 1832/04.07.05/2009-10 dated February 22, 2010 on the subject and specifically to Paragraph 1.8 contained in the annexure thereto on 'prohibiting alterations / corrections on cheques'.
A few references have been received from banks and members of the public seeking certain clarifications on legal validity, effective date of implementation, etc. We wish to clarify that the prescription on 'prohibiting alterations / corrections on cheques' -

has been formulated on the basis of recommendations of a working group constituted for examining the need for standardisation of cheque forms and enhancement of security features therein and after consultations with banks;

has been introduced to curtail cheque frauds on account of alterations in the various fields of cheques and to give protection to customers as well as banks;

will be applicable only for cheques cleared under the image-based Cheque Truncation System (CTS). Collecting banks should ensure, ab initio, that such cheques are not accepted for presentment in CTS.

is not applicable to cheques cleared under other clearing arrangements such as MICR clearing, non-MICR clearing, over the counter collection (for cash payment) or direct collection of cheques outside the Clearing House arrangement .

has been issued in exercise of statutory powers conferred on the Reserve Bank of India under the Payment and Settlement Systems Act, 2007.

This prescription will be effective from December 1, 2010. Banks are advised to ensure that adequate care is taken to educate the customers and to create awareness among them so that the entire process is carried out in a smooth manner. As regards other aspects contained in our circular under reference, separate communication will follow from Indian Banks' Association / National Payments Corporation of India.
Yours faithfully
(Arun Pasricha)
General Manager